Public debt stock may hit N130tn by Dec – Report

Nigeria’s public debt stock is projected to hit N130tn this year, raising concerns about the country’s debt-to-gross domestic product ratio.

This was revealed in a report by Afrinvest, an investment management company, titled, ‘Bank Recapitalisation, Catalyst for a $1tn Economy, ‘ unveiled in Abuja recently.

Nigeria’s public debt stock, which includes external and domestic debt, stood at N121.67tn in the first quarter of 2024, up from N97.34tn in the fourth quarter of 2023, according to the National Bureau of Statistics, indicating a growth rate of 24.99 per cent on a quarter-on-quarter basis.

Afrinvest estimated that the fiscal deficit, total public debt stock, debt-to-GDP, and debt-servicing-to-revenue rate would exceed N13.0tn, N130tn, 55 per cent, and 60 per cent by 2024 year-end, respectively.

As of Q1 2024, Nigeria’s public debt stock stood at N121.7tn, comprising N77.5tn (63.6 per cent) in domestic debt and N44.2tn (36.4 per cent) in external debt.

The domestic debt includes N44.8tn in Federal Government bonds, N20.3tn in Treasury bills, and N12.4tn in other domestic debt.

The external debt is made up of N14.3tn from multilateral creditors, N10.9tn from bilateral creditors, and N19.0tn from commercial creditors.

The investment management firm in its report, also said the 2024 budget is based on ‘overly optimistic’ revenue assumptions, which could lead to a repeat of the historically disappointing budget performance.

“The expectation of a 43.9 per cent share of the projected revenue from oil and other minerals is unrealistic,” the report stated.

Afrinvest’s assessment of the 2023 actual budget revealed a sustained under-performance, with actual revenue outpacing the budgeted amount by 7.6 per cent to N11.9tn.

However, aggregate expenditure rose by 31.8 per cent to N18.8tn, leading to a higher deficit of N46.9tn.

“The share of Federal Government’s debt in total public debt stock rose 44.6 per cent year-on-year to N487.3tn, accounting for 89.7 per cent of total public debt stock by year-end,” the report noted.

Afrinvest further stated that “the Federal Government’s expansive borrowing plan could rub off negatively on banks’ deposits, given the attractive yields on risk-free papers as compared to interest on banks’ deposit.”

It added, “We believe banks would continue to battle heightened risks of asset deterioration, partly induced by the consumption-tilted budgetary patterns.”

Meanwhile, Afrinvest commended the Central Bank of Nigeria’s move to streamline the number of Bureau De Change operators, sustained the policy on the collapse of the previous multiple forex segments, and resumed periodic sales of forex to approved BDCs at a discounted rate.

“The CBN supervision of BDC operations has been enhanced, and compliance has improved due to higher stakes of the operators,” the report noted.

However, Afrinvest warned that “what should have been a short-term pain from this policy action has become endemic, due to the weak forex reserve war chest to adequately meet up with market demand.”

The report recommended exploring alternative sources of forex, such as bilateral loans, natural resource-tied loans, debt-for-nature swaps, and asset concessions, to provide extended short-term reliefs.

“For the forex market to experience sustainable tranquillity, traditional forex inflow sources – oil production, remittances, and foreign portfolio investment – must be revitalised by supportive fiscal policies. Standalone, these policies will only deliver short-term relief on the forex debacle,” the report stated.